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Banking on new technologies in the fight against financial crime

According to Edlira Fejza of Deutsche Bank, tools such as data analytics and machine learning are anti-money laundering (AML) game-changers.

In today’s banking environment, the potential for financial crime looms ever large as criminals constantly seek new means and technologies to defraud the system. But banks and financial institutions are fighting back, by deploying the talent and tools needed to counter criminal activity.

Recently, we spoke with Edlira Fejza, the Financial Crime – AML Compliance Officer for Deutsche Bank. Among Edlira’s responsibilities at the nearly 150-year old institution, she is in the business line AFC – US for Global Transaction Banking including global securities services, trade finance, and institutional and corporate cash management. Edlira shared her views on the steps that corporations and institutions can take to combat crime, as well as the role that artificial intelligence and machine learning can play.

“With regards to data analytics and artificial intelligence / machine learning, I would say that those technologies work really well with those financial institutions that have implemented them. From my perspective, this technology can completely change the way they see their customers.” – Edlira Fejza, Deutsche Bank

ANSWERS: What are the most common and substantial threats of financial criminal activity that you are seeing in the global banking landscape?

EDLIRA FEJZA: Nowadays, we’re seeing financial crimes increasing more and more in different areas, especially money laundering, and also we’re seeing a lot of corporate fraud, bribery and corruption. In addition to that, we’re seeing cybercrime increasing even more compared to other crimes. I think what is happening right now is because financial institutions generally lack effective cybersecurity programs, so many are being attacked and are having so much data breaching.

When it comes to corporate fraud, we see identity theft, insurance fraud and, increasingly, mortgage fraud. Preventing fraud from criminal financial activity is not an easy process, either. Many financial institutions are lacking in their KYC procedures. Even if they do have them in place, many times they don’t have a clear picture of their customers. This could be for many reasons, but I think one of the main reasons is because they don’t have a comprehensive control framework in place, resulting in ineffective customer onboarding and monitoring processes. Many times what they have in place is pretty manual or is outsourced to third parties; recently institutions started using data analytics and moving towards artificial intelligence / machine learning, which is tremendously effective in the workflow for those that have it implemented.

In the global banking landscape, we see financial institutions working with regulators and auditors, and also with the first line of defense (the front office) on implementing more effective and efficient preventive controls.

ANSWERS: What role do you see corporations and financial institutions playing in combating corruption?

FEJZA: Financial institutions play a very crucial role because they are the ones collecting all the data. They identify and verify the onboarded customers, flag high-risk customers, and they can be the first to spot customers who are colluding in criminalization. An effective KYC process is very important because institutions are the first to collect the data from customers, and the regulations are changing every day and enforcing more and more data collection.

Financial institutions are playing a huge role when it comes to cooperation with regulators and with the FBI. What we’ve seen constantly these past couple of years is that cooperation with the FBI has been very helpful to financial institutions. Institutions do have a much clearer picture on what the FBI expects to see, especially on the suspicious activity report filings (SARs), and are working with them to combat money laundering, corruption and terrorist financing. Institutions know their customers and collect data. Their challenge is to have a clear picture of their customers, because there is so much data collected and stored in different systems and they have to make the connection between every single department (KYC, financial crime, transaction monitoring, suspicious activity reporting, etc.). In many instances there is disconnect or they don’t have very clear coordination but many institutions are working on it thanks to advanced BPM tools.

“If you do not have a cybercrime program, please establish one. There are many professionals who think cybersecurity is part of the IT department. This is a big misconception.” –Edlira Fejza, Financial Crime – AML Compliance Officer for Deutsche Bank

ANSWERS: You talked about artificial intelligence and machine learning and some of those new technologies. What are your thoughts on how new technologies such as cryptocurrencies, data analytics, and artificial intelligence can be deployed in the fight against money laundering and other financial crimes?

FEJZA: With regards to data analytics and artificial intelligence / machine learning, I would say that those technologies work really well with those financial institutions that have implemented them. From my perspective, this technology can completely change the way they see their customers.

Data analytics is amazing. It pulls data from every single source that we have on customers and it gives us the opportunity, especially with machine learning, to build new models. By having these new models and algorithms, we get a better understanding of our customers, with very clear reporting on high-risk customers, the number of politically exposed persons we may have, and where the risks are coming from.

From an industry perspective it evaluates the compliance effectiveness and reduces the cost of non-compliance. Management makes more effective and strategic decisions by understanding the root cause of the issues, such as a view of how exposed we may be to high-risk industries, what percentage of the products are high risk and what percentage is provided to high-risk customers.

I strongly foresee financial institutions incorporating data analytics and artificial intelligence/machine learning in the fights against money laundering and other financial crimes. Some financial professionals are concerned because they think they may lose their jobs, but I see it in a very positive way. Data analytics and artificial intelligence is going to be so different compared to what we thought because it’s going to automate and enhance so many processes. It’s going to give us a better understanding of different departments, and it will help with coordination between them.

Nowadays, it’s hard to have coordination between departments. For instance in compliance, you may have a suspicious activity report (SARs) review team, a transaction monitoring team, and a special investigation and subpoenas team, as well as other departments in the first line of defense such as client onboarding. Synergy between internal departments is sometimes through different information systems and remains a challenge because IT can be very costly. In these instances, they lack having an effective compliance program in place. I think data analytics and artificial intelligence is going to help increase their effectiveness and compliance with regulations.

When it comes to cryptocurrencies, we are paying attention to them. There are going to be different interpretations because different jurisdictions and countries are going to see them in different ways. I do think the status of cryptocurrencies in fighting money laundering and financial crimes is going to be challenging because financial institutions have to come up with new policies and procedures. They need to train their employees on how cryptocurrencies work and how it prevents money laundering and financial crime associated with terrorist financing.

It’s going to be very challenging for financial institutions to change the whole process. I think cryptocurrencies can enhance the payment process; blockchain technology is very quick to integrate and creates transparency. Cryptocurrencies as a concept is also related to the culture, too. I think we might see that less-developed countries are going to embrace it, but in other jurisdictions where customers trust and rely a lot on financial institutions, it’s going to be a little bit unacceptable if they have to switch to a cryptocurrency.

ANSWERS: Having seen the fight against money laundering evolve during the course of your career, what advice would you have for other financial professionals?

FEJZA: Financial institutions are getting even more mature in the work they’re doing on their AML compliance. They’re realizing the importance of better alignment between the first line and second line of defense, and coordination with the compliance department and auditors. What I suggest to financial professionals when it comes to AML and financial crime is to establish an effective compliance program for all kinds of financial crimes and coordinate your efforts. Collaborate a lot with auditors and regulators, and have constant communication with them. They will give you perspectives that you actually might not see in this moment.

Also, incorporate data analytics and machine learning. I think it’s going to be very efficient. I know that when it comes to accepting new technology, many financial professionals hesitate. Data analytics is going to help a lot with enhancing the KYC process as well as with transaction monitoring.

If you do not have a cybercrime program, please establish one. There are many professionals who think cybersecurity is part of the IT department. This is a big misconception. Executives need to be educated on that. IT can build your systems and can design them the way you want, but IT doesn’t necessarily know the cybersecurity threats that are coming to it. There should be strong coordination between business functions and the IT department. You should have a plan in place. Having a better cybersecurity program in place is going to help you know how to react when it comes to data breaches and different threats.

Please educate your employees on cybercrimes, especially on social engineering. I believe financial institutions are among the top three biggest targets for social engineering. Financial professionals have to educate their employees how to react when it comes to social engineering and how to notice it right away.

Waiting until the last moment until a big threat or data breach occurs is going to have a huge financial and reputational cost. Be prepared and have programs in place. Plan ahead on how you are going to react.

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